Cryptocurrency in Costa Rica
Let’s learn a little more about cryptocurrency, this payment method and its use in Costa Rica.
What is it?
First, let’s define money. Money is an asset that functions as a means of payment. It can be understood as a social convention because for an asset to be considered money, it must be accepted by the public.
It must have several characteristics: be divisible, easy to use, have low production costs, serve as a store of value and as a unit of account.
In addition, a means of payment is defined on the basis of who issues it (such as banks or private agents), its format, its access (universal or restricted) and its technology.
Let us understand that the most common forms of money are cash assets and bank money, which function as legal tender, backed by central banks.
However, due to technological innovation, other digital assets have emerged issued by private agents, on platforms where there is no involvement of a central authority.
Private digital currencies include assets that are based on cryptographic technology.
This technology allows verification of asset ownership, secure transfer between agents and controls the creation of monetary units. This is why this technology is preferred: to avoid counterfeiting, duplicate use of the same unit or excessive creation of these assets.
Assets that operate under this technology are called cryptocurrencies. These operate on an electronic accounting system that keeps track of transactions between individuals and available purchasing capacity.
The accounting system is decentralized (i.e., it is managed by several agents) and uses blockchain technology for the registration and authentication of each transaction.
Cryptocurrencies are therefore a subcategory of digital currency.
Why did it start to be used?
Cryptocurrencies began to gain popularity due to the possibility of carrying out transactions, local or cross-border, anonymously and directly between parties, without the need for intermediaries and through electronic platforms.
These transactions are faster and have reduced or eliminated the cost of transfers. In addition, technological advances have led to the proliferation of cryptocurrencies.
Currently, there are more than 11,000 cryptocurrencies offered on exchange platforms, but only 30 of them have any significant level of liquidity.
The most popular cryptocurrency is the Bitcoin. It was created in 2009 and has been taken as a model for the other cryptocurrencies created.
The value of this asset has been highly volatile in terms of national currencies or baskets of goods and services.
Volatility represents a strong disadvantage since it makes it difficult to predict with certainty its value in terms of goods and services produced or consumed and limits the incentives to use this asset for savings purposes.
In order to mitigate the problem of volatility, there are some cryptocurrencies with value tied to an asset or set of assets (commodities or legal tender): stablecoins, such as Tether.
The growth of cryptocurrencies as a means of payment is interfered by problems of credibility and transaction costs of the fixation to the reference asset. Added to this is the fact that people must have digital devices and know how to handle the technology.
Another disadvantage of cryptocurrencies is the verification process that slows down the number of transactions per second.
Finally, some other disadvantages are:
- the high energy consumption required for the mining process
- its environmental impact
- anonymity, as cryptoassets have become a haven for illicit activities.
The Bank for International Settlements (BIS), the Financial Stability Board (Basel) and the Financial Action Task Force (FATF) have warned governments about the need to be vigilant about the use of cryptocurrencies and virtual assets in general and regulate them as necessary.
For now, the vast majority of countries have tolerated the emergence of cryptoassets because of their relatively limited use.
In fact, no person is obliged to give or receive them as payment unless he has undertaken to do so under some contract.
Some countries, such as China, have imposed restrictions on the operation of cryptoassets because there are some risks for users as they do not have the backing of banks or guarantees.
Another example is El Salvador, where a law was recently passed that forces the acceptance of Bitcoin as legal tender.
In Costa Rica, the circulation and exchange of cryptoassets are permitted activities because they have not been expressly prohibited by law. (Read also Economic indicators of Costa Rica – SensorialSunsets)
Indeed, in the country, cryptoassets do not represent legal tender; this means that citizens are not obliged to accept these assets. Thus, any Costa Rican who wants to make use of these assets must be informed about their risks.
However, the Ministry of Finance indicated that, under the current legal system, the use of cryptocurrencies for the payment of tax obligations is not viable.
Currently, the discussion of cryptoassets began a few months ago, when deputy Johana Obando and her team designed a bill that aims to provide a legal framework for the use of cryptoassets in Costa Rica.
Thus, bill number 23,415 was introduced in October 2022. From that moment on, a debate related to this issue has been developed.
According to the deputy’s team, the decentralized economy developing around cryptocurrencies has continued to develop and it would be a mistake not to adapt to new technologies.
What is your opinion on this subject?